Real Madrid's $400 million gamble

Return of the Galácticos. Galácticos Strike Back. Revenge of the Galácticos. Galácticos Part Deux.

Call it what you like, they're back. Bigger, better and brasher than before. Glitzier and more glamorous than you could ever imagine. This is the sequel to end all sequels, a huge summer blockbuster and another taste of Hollywood for the club that one player described as having embarked on a process of "Disneyfication."

Even the club's own sporting director has likened this latest production to a film and insisted, with such huge names in the lead roles, that it's guaranteed to be a box-office smash. Whether it will actually be any good is another matter entirely, of course.

The return of Florentino Pérez to the Santiago Bernabéu presidency signals the return of the world's most lavish players to the Santiago Bernabéu pitch. Unopposed, Pérez walked back into Real Madrid for the second time, having walked away in February 2006. His feet barely under the desk, he completed the signing of Kaká; less than four days later Cristiano Ronaldo arrived, too.

Anyone who doubted that Pérez's return would mean a return to the policy he pursued last time around immediately saw the error of their ways. Under the man Emilio Butragueño once cringingly called "a superior being," there would be a second coming after all.

Pérez's Madrid has now boasted six European Footballers of the Year. He has bought them all. Not one of them won the award for his performances at Real Madrid. It is as if France Football, the magazine that awards the Ballon d'Or, does Madrid's scouting. Well, France Football and Hello!, as Pérez also bought David Beckham -- the only one of his first five signings not to have won the award. Madrid now boasts the four most expensive signings ever in Luís Figo, Zinedine Zidane, Kaká and Ronaldo.

Last time Pérez was president, he bought a Galáctico each summer: Figo in 2000, Zidane in '01, Ronaldo in '03, Beckham in '04 and Michael Owen in '05. Owen might have been described by one columnist as a "plastic galactic," but he still turned up with a Ballon d'Or under his arm and the keys to the British market -- one Pérez especially covets. Then there was Brazilian star Robinho, the man who was dubbed "the new Pelé" and the one player who was supposed to win the award while at Madrid, but didn't.

Adding a big name to the cast every year was an obsession. If Real Madrid was a film, it was a footballing Ocean's Eleven, signing up a new star and getting a bit bigger (if not actually any better) every year. Ocean's Eleven, Ocean's Twelve, Ocean's Thirteen ... this time, Pérez has jumped straight to Ocean's Sixteen. "We will have to do in one year what we would normally do in three," he declared.

Four days and two world-record transfers later, he was as good as his word. This Madrid was on course to be even more galactic than the Galácticos. Everyone had got used to long summer soap operas, but this time the biggest deals were over in a flash -- like a Galáctico drive-thru.

The announcement of the latest acquisition was short and to the point, a statement reading: "Real Madrid confirms that we have made an offer to Manchester United for acquisition of the playing rights of Cristiano Ronaldo. The club hopes to reach an agreement with the player in the next few days." They didn't need to say much because everyone else would say it for them. It was headline news all over the world.

"You can tell how big this is by the fact that even we are talking about it, when normally soccer isn't our thing," said the presenter on ESPN, going coast-to-coast in the U.S. In the middle of the NBA Finals, it was the lead story. It was everyone's lead story.

Pérez had fulfilled his first objective, one that defines the Galácticos project. Barely days after Barcelona had completed a historic treble -- never before achieved by a Spanish club -- the world's gaze was firmly set on Real Madrid instead. Pérez's obsession was with returning Real Madrid to center stage and, suddenly, that is exactly where it was. Together, Kaká and Ronaldo immediately brought Madrid the one thing Pérez craves more than anything for his club: attention.

The cost was $223 million. That's just in fees. It will cost $32 million a year to pay them, making some $406 million in total. And still Madrid wants more. Pérez's appetite is voracious and new director general Jorge Valdano has admitted that it wanted "four or five more." (Real also has signed defender RaúlAlbiol from Valencia and striker Karim Benzema from Lyon for a total of as much as $88 million.)

The Catalan press denounced the Ronaldo deal as immoral and scandalous, the moral high ground adopted with unrealistic and opportunistic relish. Barcelona President Joan Laporta lost his cool and railed against it. Pérez had won a second prize already: Treble-winner Barcelona was running scared.

Everyone was asking the same question. Well, everyone outside Madrid, anyway. In the Spanish capital -- to start with, at least -- no one cared, they were far too excited. But everyone else was asking: How on earth can Madrid afford it?

Sure, Ramón Calderón had claimed to have left $126 million in the club's coffers. OK, so Madrid was hopeful of recovering $138 million on as many as nine players it was hoping to offload. But how many people really believed Calderón? And as Valdano himself added: "People don't leave Madrid easily." Besides, that money hadn't yet come in and it still didn't cover Madrid's projected spending. Worse, it was in debt to the tune of almost $811 million, according to one academic report.

The last time Madrid found itself in difficulties, Pérez sold the family silver. The club's Ciudad Deportiva training ground was sold off for the development of four giant towers for $619 million, wiping out the $386 million debt. It was an economic miracle, a lifeline, but as one director commented at the time: "There won't be towers every year." Now, there is no family silver left to sell.

So, like any family in trouble, Madrid went to the bank. The only difference in this case is Pérez does not fear being turned down. Worth an estimated $1.8 billion, he has excellent contacts in the finance industry and the media. He is extraordinarily powerful and the social clout of Real Madrid goes a long way.

Pérez secured loans from Caja Madrid and Banco Santander for a combined $208 million. He is also believed to have the support of the Catalan savings bank La Caixa, which provided him with the formal $79 million deposit-guarantee that he needed to run for the presidency in the first place -- a figure that saw his potential challengers drop out of the running.

Eyebrows were raised, and so were voices. Everywhere you turned -- especially if you turned in Catalonia -- people were complaining that Madrid was getting loans when others were being turned down. Finance minister Elena Salgado considered it "odd" and even Prime Minister José Luis Rodríguez Zapatero said he thought Ronaldo had been expensive.

Pérez agreed with most people that $131 million is expensive. But for Pérez, expensive doesn't mean ruinous. In fact, for him it means quite the reverse. When Real Madrid signed Nicolas Anelka for $41 million back in 1999, the then-President Lorenzo Sanz described the deal as a "beautiful madness." Pérez believes it is not madness at all -- and that is the crux of the issue.

Pérez has convinced the banks that he has a plan. A galactic plan. "The most expensive players are often the cheapest," he says. "Zidane was a world-record transfer but he ended up being cheap to Real Madrid."

It is a theme he has returned to over and over again. It is the central plank of the Galáctico policy, one so graphically displayed in his purchase of Beckham, the most marketable footballer ever -- though the impact of the Ronaldo transfer suggests the former England captain may soon have a challenger.

Beckham was always deeply uncomfortable with suggestions that he was only in Spain to sell shirts. But while his effort on the pitch was beyond reproach, it was his iconic status, not his crossing ability, that truly seduced Pérez. "There are 'investment' footballers and 'cost' footballers," says Pérez. It is that reasoning that saw him back off from signing David Villa in mid-June because Villa, he said, was expensive at $55 million.

People who have seen Villa play would disagree: He is surely worth half as much as Ronaldo. But Pérez believes that players without a Ballon d'Or, without an international profile, are not worth as much, however good they are at soccer. That is why Real had to buy Kaká and Ronaldo first -- for their "strategic" value. Privately, he told his directors that without Kaká and Ronaldo, Madrid's economic and sporting model would be "unsustainable."

Even Valdano, so often portrayed as the defender of footballing faith, an eloquent speaker on the purity of football, has talked about football as a rival for Hollywood, arguing that if you spend $100 million making a film, you know it will gross more if you get Sylvester Stallone because, whether he can act or not, he puts bums on seats. "You buy big players because they pay you back," says Valdano. "There are footballers who generate a lot of money and others who only have a sporting value."

The players Madrid buy generate a lot of money. In fact, if we believe Pérez, they pay for themselves and everyone else, and the evidence comes from his last mandate. The arrival of Figo and Zidane saw the commercial "value" of Madrid's badge jump dramatically, while Pérez claimed to have doubled the club's income between 2000 and '03. He also claimed to have signed more than 200 commercial deals even before Beckham turned up. When Figo arrived, Madrid was bringing in $138 million a year; by '06, it was more than $405 million, according to figures Pérez has presented.

How? Through marketing, tickets and television. Every Galáctico shares his image rights 50-50 with Madrid. For example, when Beckham signed a deal to advertise Gillette, Madrid pocketed half. Much has been made, too, of Beckham selling 1 million jerseys. Under Pérez, ticket sales increased as well. A club that rarely sold out soon found the Bernabéu filling for virtually every match. For the first time, there was a waiting list for season tickets and the club also bought back the right to exploit the stadium's VIP boxes, which was ceded to an intermediary.

The impact did not last forever. Last season, on a number of occasions, as many as 600 of the 4,500 VIP places were going empty. Each place costs $27,500 per year and if that pattern was repeated for every game, as Pérez feared would happen this coming season, the impact would cost $16 million.

With Ronaldo and Kaká on board, Madrid believes that it will now fill every seat this season. Pérez has also spent the last few months contacting clients at major multinationals, such as Coca-Cola, Audi and Adidas. And question marks remain. Ronaldo cost Real Madrid $131 million, plus a likely $18 million a year before tax for the next five or six years, adding up to a total of $243 million. Is he really "cheap?"

Barcelona director Xavier Sala-i-Martin insists that the notion of players like Ronaldo being economically self-financing is a myth, but then he probably would say that. There are, though, areas where it appears difficult for Madrid to be as successful as it hopes. Or even as successful as they were last time Pérez was in charge.

Let's look at shirts, for example. Madrid claimed that Beckham sold 1 million jerseys. Even if we accept the figure, is that really as lucrative it appears? The Asian market Madrid chases so zealously is flooded with counterfeits, while even the genuine ones sell at a fraction of the prices they command in western Europe.

The facile "1 million shirts at $100 a pop" formula simply isn't adequate, either. Madrid has not made the details of its agreement with Adidas available but the basic formula is the same for clubs all over the world and most will be fortunate to earn much more than $19 per shirt. Far from $100, the figure thus becomes $19. And by buying two players, do you really double sales? Won't potential Kaká shirt buyers buy a Ronaldo one instead? How many kids will be able to persuade their parents to buy both? Isn't one player trading in another player's market?

It is not just shirts, either. You cannot suddenly exploit something that is already being exploited. It is one thing tripling a club's income when you start from such a low base as Pérez did so impressively in 2000. But last year Madrid's income (not profit) was $508 million. Pérez is not to be aiming at $1.6 billion (his aim is $698 million), but it is instructive that the direct comparison does not work.

Similarly, even if VIP sales were down, they were still worth $148 million and they had a better attendance (in terms of average against stadium size, at over 90 percent) than any team in La Liga. Nor is there a TV deal up for renewal, with five years left on the one Calderón claimed was worth $1.4 billion but in fact is closer to $834 million.

Despite those fears, Pérez insists that his model is necessary and he has academic evidence to support his case. Professor Simon Chadwick, director of the Centre for the International Business of Sport at Coventry University in England, says that Kaká and Ronaldo could bring in an additional $160 million a season to Real Madrid. But will it be enough? And even if it is, isn't there something missing: the soccer?

One of the striking things about Pérez's second spell in charge of Real Madrid is that so much has been said about the money and so little about what goes on out on the pitch. It has been claimed that Beckham brought in nearly $568 million in merchandising alone, increasing profits 137 percent over his first three seasons. Even if that is true, there is one major flaw: Beckham might have sold shirts, but during those three seasons, he barely won a thing.

No one yet knows what will happen with Madrid this time around. It could be fantastic and there is no escaping the excitement fans are feeling. But there are still areas of uncertainty. The new coach, Manuel Pellegrini, was unveiled and then immediately packed off on vacation in silence. What is his role? Has he helped chose Madrid's targets? Will he be handed full authority?

When Pérez announced his formal candidacy this time around, he admitted to just one mistake last time: leaving. There was no mention of the four sporting directors, six coaches and over $608 million worth of players he'd been through in his final three years, the sacking of Vicente del Bosque minutes after he'd won the league title, or the players who felt marginalized.

There was no mention of the fact that in Pérez's final four years, having inherited a European Cup-winning team and won the competition again in '02, Madrid slipped steadily backwards in the Champions League: semifinalists in '03, then quarters, then last-16 two years running -- its worst performance since '95. There was no mention of Figo's complaint that, "It all went wrong when marketing took preference over football." And there was certainly no mention of the fact that Pérez walked out as Madrid closed in on its worst trophy-less drought for half a century.

Of course, there wouldn't be. Pérez was trying to get elected. But nor did there appear to be any self-examination. Can walking away really have been his only mistake? Apparently so. Given a chance, he'd do it all over again. Only more so. Galácticos II. Bigger, yes, but better than before?

This article originally appeared in the August 2009 issue of World Soccer magazine. To subscribe, click here.

More Soccer

We've Got Apps Too

Get expert analysis, unrivaled access, and the award-winning storytelling only SI can provide - from Peter King, Tom Verducci, Lee Jenkins, Seth Davis, and more - delivered straight to you, along with up-to-the-minute news and live scores.